Metro State Legislative Audit

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O L A OFFICE OF THE LEGISLATIVE AUDITOR
STATE OF MINNESOTA

FINANCIAL AUDIT DIVISION REPORT

Metropolitan State University

Internal Controls and Compliance Audit

July 1, 2008, through March 31, 2011

January 17, 2012 Report 12-01
FINANCIAL AUDIT DIVISION
Centennial Building – Suite 140
658 Cedar Street – Saint Paul, MN 55155
Telephone: [phone] • Fax: [phone]
E-mail: [email protected] • Web site: http://www.auditor.leg.state.mn.us
Through Minnesota Relay: 1-800-627-3529 or 7-1-1

O L A OFFICE OF THE LEGISLATIVE AUDITOR
State of Minnesota • James Nobles, Legislative Auditor

January 17, 2012
Representative Michael Beard, Chair
Legislative Audit Commission

Members of the Legislative Audit Commission

Dr. Steven J. Rosenstone, Chancellor
Minnesota State Colleges and Universities

Board of Trustees
Minnesota State Colleges and Universities

Dr. Sue K. Hammersmith, President
Metropolitan State University

This report presents the results of our internal controls and compliance audit of Metropolitan
State University for the period July 1, 2008, through March 31, 2011.

We discussed the results of the audit with Metropolitan State University on January 11, 2012.
The audit was conducted by David Poliseno, CPA, CISA, CFE (Audit Manager) and Carl Otto,
CPA, CISA (Auditor-in-Charge), assisted by auditors Kathy Rootham, Emily Wiant, Kevin
Schoenrock, and Carissa Moritz.

This report is intended for the information and use of the Legislative Audit Commission and the
management and board of the Minnesota State Colleges and Universities and Metropolitan State
University. This restriction is not intended to limit the distribution of this report, which was
released as a public document on January 17, 2012.

We received the full cooperation of Metropolitan State University’s staff while performing this
audit.

James R. Nobles Cecile M. Ferkul, CPA, CISA
Legislative Auditor Deputy Legislative Auditor

Room 140 Centennial Building, 658 Cedar Street, St. Paul, Minnesota 55155-1603 • Tel: [phone] • Fax: [phone]
E-mail: [email protected] • Web Site: www.auditor.leg.state.mn.us • Through Minnesota Relay: 1-800-627-3529 or 7-1-1

Metropolitan State University
Table of Contents
Page
Report Summary ......................................................................................................1

Overview..................................................................................................................3

Objective, Scope, and Methodology ........................................................................4

Conclusion ...............................................................................................................6
Findings and Recommendations ..............................................................................7

1. Prior Systemic Finding Not Resolved: Metropolitan State University

did not adequately assess its business risks or monitor the

effectiveness of its internal controls .................................................................7

2. Metropolitan State University did not design, document, or monitor

internal controls to mitigate risks created by some key employees

having incompatible access to computer system functions. The

university also did not resolve a prior audit finding when it allowed its

cashiers to share logon IDs ...............................................................................8

3. Metropolitan State University charged some students tuition rates and

fees that were different from the amounts approved by the MnSCU

Board of Trustees..............................................................................................9

4. Prior Systemic Finding Not Resolved: Metropolitan State University

did not always accurately account for faculty and administrator leave

benefits............................................................................................................11

5. Metropolitan State University inaccurately compensated some

employees .......................................................................................................12

6. Prior Finding Partially Resolved: Metropolitan State University did

not verify the accuracy of its bookstore commission receipts ........................13

7. Metropolitan State University did not always retain adequate

documentation to support its personnel and payroll actions ...........................13

8. Prior Systemic Finding Partially Resolved: Metropolitan State

University did not sufficiently control employees’ use of university-

issued purchasing cards ..................................................................................14
Metropolitan State University
Page

9. Metropolitan State University did not properly delegate authority to

some of its employees to authorize contracts, purchase goods or

services, and approve invoices for payment ...................................................15

10. Metropolitan State University did not properly process graduate

assistant payroll transactions ..........................................................................16

11. Metropolitan State University did not always properly process student

tuition waivers ................................................................................................17

12. Metropolitan State University did not accurately refund tuition and

fees to certain students....................................................................................17

Agency Response ...................................................................................................19
Minnesota Office of the Legislative Auditor 1

Report Summary
Conclusion

Metropolitan State University generally had adequate internal controls over its
major financial activities, such as tuition and fees, employee salaries, and
operating expenses.1 These controls generally ensured that the university
safeguarded assets, accurately paid employees and vendors in accordance with
management’s authorization, produced reliable financial information, and
complied with finance-related legal requirements. However, the university had
some control weaknesses and noncompliance in certain areas that have a high-risk
for errors, including security access to financial systems.

For the items tested, Metropolitan State University did not comply with some
policies and legal provisions related to purchasing cards, delegation of authority,
procurement, tuition and fee rates, and leave benefits.

Metropolitan State University resolved 1 of the 3 prior audit findings.2 The
university did not fully resolve prior audit Finding 2 related to its verification of
commission reports for bookstore operations; we repeat this finding as Finding 6.
The university also did not fully resolve prior audit Finding 3 related to the
sharing of cashiering activities; we repeat this finding as Finding 2. In addition,
the university had three findings (Findings 1, 4, and 8) in areas where prior audits
of other colleges and universities had identified common or systemic findings.3

Key Findings

 Prior Systemic Finding Not Resolved: Metropolitan State University did not
adequately assess its business risks or monitor the effectiveness of its internal
controls. (Finding 1, page 7)

 Metropolitan State University did not design, document, or monitor internal

controls to mitigate risks created by some key employees having incompatible
access to computer system functions. The university also did not resolve a
prior audit finding when it allowed its cashiers to share logon IDs. (Finding 2,
page 8)

1 The audit scope did not include student financial aid.
2 Minnesota Office of the Legislative Auditor, Financial Audit Division Report 02-58,
Metropolitan State University, issued September 6, 2002. The report contained three findings.
3 Minnesota Office of the Legislative Auditor, Financial Audit Division Report 10-29, Minnesota
State Colleges and Universities, issued September 14, 2010. This report contained six systemic
findings, which we define as an internal control or compliance weakness noted at a majority of
colleges or universities that we believe can most effectively be resolved by directive, guidance, or
oversight by the MnSCU system office.
2 Metropolitan State University

 Metropolitan State University charged some students tuition rates and fees
that were different from the amounts approved by the MnSCU Board of
Trustees. (Finding 3, page 9)

 Prior Systemic Finding Not Resolved:4 Metropolitan State University did not
always accurately account for faculty and administrator leave benefits.
(Finding 4, page 11)

Audit Objectives and Scope

Objectives Period Audited
 Internal Controls July 1, 2008, through March 31, 2011
 Compliance
Programs Audited
 Financial systems security access  Personnel and payroll expenses
 Tuition and fee revenues  Operating expenses
 Auxiliary revenues  Equipment purchases
 Local bank accounts  Relationship with the Metropolitan
State University Foundation

4 Minnesota Office of the Legislative Auditor, Financial Audit Division, Report 10-29, Minnesota
State Colleges and Universities, issued September 14, 2010 (Finding 4).
Internal Controls and Compliance Audit 3

Metropolitan State University
Overview
Metropolitan State University serves over 9,600 students. Approximately 36
percent of the students are full-time and 64 percent are part-time. The university
offers more than 60 undergraduate majors and a variety of graduate programs.
Dr. Sue K. Hammersmith has been the president of the university since July 2008.
The university is part of the Minnesota State Colleges and Universities (MnSCU)
system. MnSCU is comprised of 31 state universities, community colleges,
technical colleges, and the system office. The MnSCU Board of Trustees appoints
the chancellor and provides strategic direction and governance for the system.5

Metropolitan State University uses MnSCU’s accounting system to process and
record financial activities. It uses the MnSCU accounting system to generate
payments from the state treasury and account for money maintained outside of the
state treasury in local bank accounts. Metropolitan State University uses local
bank accounts to allow for greater flexibility in managing high-volume
transactions for financial aid, student activities, and auxiliary operations, such as
parking and food service.

Metropolitan State University finances its operations through the Office of the
Chancellor’s allocation of state appropriation and retention of its tuition and other
receipts. These revenues determine the university’s total authorized spending
level. The authorized spending level is the basis for establishing spending budgets
for various administrative functions and academic departments. The university’s
yearly audited financial statements provide additional information on the
university’s financial operations.6

Table 1 summarizes the university’s financial activities for fiscal years 2009 and
2010.

5 Minnesota Statutes 2010, 136F.06 and 136F.07.

6 Metropolitan State University audited financial statements can be found at MnSCU’s web site

under the Finance Division.
4 Metropolitan State University

Table 1

Revenues, Expenses, and Changes in Net Assets

Fiscal Years 2009 and 2010 (In Thousands)

2009 2010
Revenues
Tuition, auxiliary and sales, net $ 24,748 $ 27,496
State appropriations 24,128 21,987
Capital appropriations 689 9,017
Other 11,933 17,725
Total Revenue $ 61,498 $ 76,225

Expenses
Salaries and benefits $ 42,816 $ 43,615
Services and other expenses 13,799 15,835
Depreciation 2,306 2,299
Financial aid, net 1,126 2,092
Interest expense 539 623
Other 39 48
Total Expense $ 60,625 $ 64,512

Change in net assets $ 873 $ 11,713
Total net assets, beginning of year $ 45,361 $ 46,234
Net assets, end of year $ 46,234 $ 57,947

Source: Metropolitan State University’s Annual Financial Report for the years ended June 30, 2009 and 2010,

Management’s Discussion and Analysis.

Objective, Scope, and Methodology
Our audit included the material financial activities of Metropolitan State
University, including security over access to computerized accounting
applications, tuition and fee revenues, auxiliary revenues,7 local bank accounts,
personnel and payroll expenses, operating and administrative expenses,
equipment purchases, and the university’s relationship with the Metropolitan State
University Foundation. However, the scope did not include federal student
financial aid.8 The audit examined transactions for fiscal years 2009, 2010, and
2011(through March 31, 2011).

Our audit objective was to answer the following questions:

 Were internal controls at Metropolitan State University adequate to ensure
that the university safeguarded receipts and other assets, accurately paid
employees and vendors in accordance with management’s authorization,

7 Auxiliary revenue activities include parking, food service and vending, and bookstore operations.
8 Because federal student financial aid is audited by a CPA firm under the Single Audit Act, we
did not include student financial aid in our audit scope.